Applying for a new credit card after closing on your mortgage
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Congratulations! You’ve just bought (or refinanced) a house! Or maybe you’re considering the possibility.
With average mortgage interest rates reaching all-time lows, many people have decided it’s time to take the plunge into homeownership or — for current homeowners — to refinance their higher rates in order to get a lower monthly payment or cash out equity.
What does this mean for avid travelers who sign up for travel rewards credit cards with regular frequency? Typically, buying or refinancing a house means needing to temporarily put the brakes on signing up for the latest and greatest cards.
Related: The best travel credit cards of 2020
How long after closing on your mortgage do you need to wait in order to apply for your next travel rewards credit card? We talked to some mortgage industry professionals to find out some of the dos and don'ts during the mortgage process and how long you should wait after closing before applying for new credit cards.
Keep the status quo during the process
Mark Karetskiy, loan officer and team lead for the Karetskiy Lending Team with Movement Mortgage, sends prospective home buyers a list of “Ten Mortgage Commandments of Buying a Home.” Among the commandments is “Thou shalt not originate any kinds of inquiries into your credit.”
Related: Ten commandments for travel rewards credit cards
“Will applying for a travel rewards credit card before closing on your purchase or refinance disqualify you from obtaining the financing?” he said. “No, not necessarily.”
However, Karetskiy says it could. And it will likely cause more work, time and stress for both you and your loan officer.
“The lender’s job is to make a yes-or-no decision on an applicant’s request for credit based on the applicant’s current and past two-year income, credit and asset history,” he continued. “It is in the best interest of anyone requesting credit to keep the status quo on everything related to their qualifications, most importantly, their credit.”
Brian Rubenstein, senior director with Ally Home, says applying for a new credit card before you sign on the dotted line for your mortgage could place you under more scrutiny during the loan review and underwriting process.
“They’ll need to be prepared to provide more documentation to help the lender fully understand the debt obligations associated with the card as part of the borrower’s overall financial picture,” he said about home buyers.
Although adding a new credit card doesn’t have to mean adding debt if you’re paying your balances in full every month, your loan officer doesn’t know whether you intend to carry a balance on any new credit cards. According to Rubenstein, you’ll need to be prepared to provide more documentation to help the lender fully understand the debt obligations associated with the card as part of your overall financial picture.
“In short, opening a new credit card just adds an additional item that must be checked out during the home mortgage process,” he said.
The wait is over
For a home purchase, it’s best to wait at least a full business day after closing before applying for any new credit cards to make sure your loan has been funded and disbursed.
“Until you have the keys, don’t do anything,” Karetskiy said. “Even if you’ve signed and received confirmation that your lender has funded, the title company still needs to disburse the money. Until they do, you’re not really done.”
The guidance changes slightly for a refinance on a primary residence because the closing date is not the funding date. With refinances, the borrower has a three-day right of rescission, which means you have three business days after closing to rescind or cancel your mortgage loan. Your refinance is not funded until these three days have passed.
“Therefore, on refinances, it is best to wait until you’ve received confirmation from your loan officer or lender that your loan has officially been funded and disbursed prior to resuming regular use of your credit,” Karetskiy explained.
Why to apply immediately and why you might want to wait after closing
Once you’ve received confirmation that your closing is complete, it can be an ideal time to apply for new credit cards. Typically, there are lots of expenses involved in moving and setting up a new house, especially for first-time buyers. Furniture, lawn equipment and appliances may be needed, and these are all things that can be paid for with your new rewards card.
Related: The best cards for home improvement purchases
Since credit cards require spending a minimum amount — often between $3,000 to $5,000 within a certain number of months — in order to receive a sign-up bonus, it’s fairly easy to knock out these requirements.
Cards that offer revolving quarterly categories, such as the Discover it Cash Back card, which includes restaurants and PayPal among its 5% cash-back offerings in the third quarter of 2020 (up to $1,500 in purchases per quarter, enrollment required), may be a good choice.
For those who look to Amazon for everything, including things needed for the home, there’s the Amazon Prime Rewards Visa Signature Card, which offers 5% cash back on Amazon and Whole Foods. The information for the Discover it Cash Back and Amazon Prime Visa has been collected independently by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.
Related: Which card should I use? A guide to navigating COVID card bonuses and benefits
However, one reason why you might want to wait before applying is to get a better idea of your new monthly expenses.
“For those buying a new house, and especially for first-time home buyers, it’s a good idea to live in the new house for a while and get a good feel for the true cost of home ownership, including insurance, taxes, utilities and maintenance,” said Ally Home’s Rubenstein.
Impact on your credit score
While everyone’s situation is different, applying for a new credit card shortly after closing on your mortgage does have the potential to lower your credit score. Adding a mortgage means you’ve opened new credit, increased your total amount owed, impacted your credit mix and decreased the length of your credit history. In addition, since it's a new account, you have no payment history associated with it.
Related: How a single car payment dropped my credit score by double digits
“If someone just closed on a mortgage, they are impacting every factor that goes into their FICO score,” Karetskiy said. “So, it’s safe to say that adding a new credit card in addition to a new mortgage in a short time frame is likely going to decrease your scores.”
If you’ve applied and been denied
I am a homeowner who has been through the mortgage application process multiple times. Back in 2016, I decided to move from a condo to a single-family home. I waited until the day after closing to apply for a few new cards. It had been about seven months since my last new credit cards were opened. All my applications were approved on the day after closing.
I moved again in 2019 — only this time, I waited about two months before applying for any new rewards credit cards. One of the cards I applied for was the Citi Premier® Card. The result: pending, then denied.
The number of recent inquiries was cited as a reason for the denial. Knowing that it had been about six months since my last new credit cards were opened, I decided to call the card’s reconsideration line to discuss and hopefully overturn the denial.
Related: Your guide to calling a credit card reconsideration line
Before doing so, I took a look at my credit inquiries on Credit Karma. I noticed some of my inquiries were related to shopping for mortgage rates, my lender checking my credit during the application process and again before closing and setting up utility service at my new home because some utility providers require a credit check before allowing you to set up service with them.
I called the reconsideration line and explained what I thought were the reasons for the recent inquiries. The rep on the call couldn’t overturn the denial, but said she would escalate it to another department. Two weeks later, I got an email saying that I’d been approved.
Bottom line
Buying a home is typically the biggest purchase of your life. And it often requires waiting until the process is complete before signing up for new travel rewards cards. But after you’ve received the OK from your lender and title company that everything’s funded, you’ll be ready to dive right back into boosting your points and miles balances one can of paint or insurance payment at a time.
